Cost cutting, inventory management and improvements in e-commerce helped Pacific Sunwear of California Inc. reduce its third-quarter loss, but the teen-apparel retailer cut fourth-quarter guidance and now expects to lose money.

This story first appeared in the November 19, 2008 issue of WWD. Subscribe Today.

The Anaheim, Calif.–based specialty retailer said its net loss contracted to $2.5 million, or 4 cents a share, during the three months ended Nov. 1, versus a loss of $20 million, or 29 cents a share, for the same period last year. Excluding a 1 cent a share benefit from the discontinued D.e.m.o. and One Thousand Steps operations and a noncash goodwill impairment charge of 6 cents a share, the company had a profit on an earnings per share basis of 1 cent, matching the consensus estimate. Net sales slid 5.3 percent to $323.6 million from $341.9 million and were down 7 percent on a same-store basis.

“To strengthen our financial position in this economic downturn, we are focused on reducing our inventory, capital expenditures and other expenses,” chief executive officer Sally Frame Kasaks said.

PacSun said increased promotional activity and expectations of a “high-single-digit” decrease in comparable-store sales led it to anticipate a fourth-quarter loss of 3 to 8 cents a diluted share, including an estimated gain of 23 cents on the sale of its Anaheim distribution center. Including the Anaheim facility, the company had expected EPS of 11 to 16 cents a share.

For the nine months, PacSun posted a net loss of $36.8 million, or 55 cents, compared with a loss of $35.6 million, or 51 cents, for the same period in 2007. The company’s loss from continuing operations totaled $11.8 million, or 18 cents a share, versus income of $26.1 million, or 37 cents a share. This year’s results include an asset impairment charge of 7 cents a diluted share in the first quarter related to materials handling equipment in the Anaheim distribution center and a goodwill impairment charge of 6 cents a diluted share.

Net sales dipped 2 percent to $903.2 million from $921.8 million last year while same-store sales were down 3 percent.

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